You'll often hear warnings that if you don't make an effort to save for retirement, you're likely to end up cash-strapped. The reality is that Social Security will only pay you so much. And if you attempt to live on those benefits alone, you might have to give up a lot of the things you enjoy.
Now there are different retirement savings plans you can use to set yourself up with funds for the future. Many people have a 401(k) plan through an employer. And a lot of folks are also familiar with IRAs.
But there's another retirement savings account you may not have heard of due to the fact that it's not a retirement plan in the traditional sense of the word. However, it can very easily serve as a retirement account -- and a very helpful one at that.
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Are you familiar with HSAs?
HSAs, or health savings accounts, aren't usually labeled as retirement accounts for the simple reason that you don't have to wait until you reach retirement age to use one. You can tap an HSA at any time or age when you need money to cover medical expenses.
HSAs offer a world of tax benefits. The money you put into an HSA goes in tax-free, as is the case with a traditional IRA or 401(k). Meanwhile, you can invest your HSA to grow your balance, and you'll enjoy tax-free gains. HSA withdrawals are also tax-free when used for qualifying medical expenses, the same way Roth IRA or 401(k) withdrawals are yours to enjoy tax-free.
At this point, you may be thinking, "HSAs sound great, but what makes them a retirement account?" And the answer is simple.
Since HSA funds never expire, you have the option to fund one of these plans during your working years and reserve the money in it for retirement, when your healthcare costs are likely to rise. That way, you'll have money earmarked for one major retirement expense.
Now normally, taking an HSA withdrawal for something that isn't a healthcare expense will result in a costly penalty. So that's a situation best avoided. But you should also know that once you turn 65, you can take an HSA withdrawal for any purpose, even if it's medical in nature, without penalty.
And that's also why it's more than fair to call an HSA a retirement savings account. Come age 65, your funds are unrestricted, and you can take withdrawals to pay for anything from expenses you incur under Medicare to home repairs.
Of course, you should know that HSA withdrawals taken for non-medical purposes are subject to taxes. But that's no different than withdrawals taken from a traditional IRA or 401(k), so it's not such a terrible thing.
Plus, do remember that you're getting tax-free contributions with an HAS. So even if you don't get your withdrawals tax-free, it's still a pretty good deal.
A plan you don't want to pass up
All told, HSAs are worth not only contributing to, but reserving for retirement. If you're eligible for one of these plans based on your health insurance coverage, it pays to fund one consistently and, if possible, avoid tapping your balance until your senior years roll around.
